How To Give Kids The Gift Of Stock (2024)

FAQs

How To Give Kids The Gift Of Stock? ›

In my opinion, the single best way to give stock to kids is to contribute to their 529 or ABLE accounts. Many parents have a few hundred or a few thousand dollars invested for their kids future, and they will appreciate every extra dollar that can be invested on behalf of their kids.

You can purchase shares within your brokerage and transfer them to the recipient, but this could incur a fee. "To avoid the fee, you can give your gift recipient cash to purchase the shares on their own," Brett Holzhauer, a personal finance expert at M1, an investing app, told CBS MoneyWatch.

The cost basis of stock you received as a gift ("gifted stock") is determined by the giver's original cost basis and the fair market value (FMV) of the stock at the time you received the gift. If the FMV when you received the gift was more than the original cost basis, use the original cost basis when you sell.

Start by explaining the basics of the stock market. You can explain that the stock market is a place where companies sell shares of ownership to investors, and that investors can buy and sell these shares in order to make money. Use simple examples and real-life scenarios to illustrate how the stock market works.

For 2024, the annual gift exclusion jumps up to $18,000. The exclusion applies to any gift: stocks, cash, a car (at its fair market value), real estate and more. If your gift(s) to any one person exceeds the $17,000 exclusion limit in a calendar year, you are required to file a Gift Tax Return (Form 709) with the IRS.

As an example, let's say you receive a gift of stock from your grandfather. He bought it for $10 a share and it's worth $15 a share on the day you receive it. If you then sell the stock, whether for a gain or a loss, your cost basis will be the same as your grandfather's: $10 per share.

By gifting appreciated stock, you avoid any long-term capital gains tax liability that you would otherwise owe in the future. Any capital gain liability does transfer to the recipient of your gift – there is no “step-up” in cost basis when gifting stock; this occurs only at death.

Because you're gifting the stock directly instead of selling it, you won't owe capital gains tax — but the gift recipient will when they eventually sell the shares. Capital gains tax is based on the profit (capital gain) from a given stock sale rather than the total amount of the sale.

Not all gifts are treated equally. If you gift cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications to the donor. But if you give appreciated securities, the capital gains taxes can be significant.

Do I need to pay taxes on gifted stock? ›

This means you don't owe taxes at the time of the gift of the stock. When the recipient sells the stock, however, it is a taxable event. Like everything else related to investing and taxes, a correct cost basis is the key to resolving how much you owe when you sell a stock received as a gift or through inheritance.

The annual gift tax exclusion entitles you to give away up to $17,000 per person per year as of 2023. You can use the lifetime exemption if the value of the stock is more than the annual exclusion. The lifetime exemption is $12.92 million as of 2023.

As previously discussed, if you give existing stock to someone else, your cost basis will transfer to them. Since you didn't sell the investment, you won't owe any capital gains taxes — and the recipient won't pay taxes until they sell the shares.

Stocks are a type of security that gives stockholders a share of ownership in a company. Companies sell shares typically to gain additional money to grow the company. This is called the initial public offering (IPO). After the IPO, stockholders can resell shares on the stock market.

Let your child pick out a stock and either buy a few shares for them or set up a model portfolio so they can make some trades on their own. As they get older, encourage your kids to invest their money in a mix of stocks, bonds, and a savings account that you can help manage while they take the lead.

You can transfer stocks from your brokerage account into a minor child's custodial account, which is set up at the same brokerage. Alternatively, you also can purchase stock for the custodial account. Once the child turns 18, the assets in the account belong to him or her.

This means you don't owe taxes at the time of the gift of the stock. When the recipient sells the stock, however, it is a taxable event. Like everything else related to investing and taxes, a correct cost basis is the key to resolving how much you owe when you sell a stock received as a gift or through inheritance.

Tax Implications of Gifting Stock

By gifting the stock that has appreciated, instead of selling it, you (the donor) don't pay any capital gains taxes. For 2023, the annual gift tax exclusion is $17,000 per receipt per year for single filers or $34,000 per receipt per year for married couples filing jointly.

A: There are likely no taxes due if you gift instead of sell your home to your son. You could, in fact, avoid capital gains tax. Transferring the home to your son is considered a gift. Currently, you can gift up to the federal estate and gift tax exemption amount of $12.06 million.